China–Pakistan Economic Corridor

China–Pakistan Economic Corridor 中国-巴基斯坦经济走廊 پاكستان چین اقتصادی راہداری
System information
Length:	2,442 km (1,517 mi)

The China Pakistan Economic Corridor (CPEC)^{[lower-alpha 1]} is a collection of projects currently under construction at a cost of $46 billion^[1] which are intended to upgrade and expand Pakistani infrastructure.^[2] The Exim Bank of China will lend the Government of Pakistan approximately $11 billion to overhaul the country's transportation infrastructure at heavily-subsidized concessionary loans with an interest rate of 1.6%.^[3][4] These projects will span the breadth and width of Pakistan, and will eventually link the Pakistani city of Gwadar Port in southwestern to China’s northwestern autonomous region of Xinjiang via a vast network of highways and railways.^[5] As part of the project, an 1,100 kilometer long motorway will be constructed between the cities of Karachi and Lahore,^[6] which will connect to the already completed M2 Motorway which runs between Lahore and Islamabad. The Karakoram Highway between Rawalpindi and the Chinese border will also be completely overhauled and widened.^[7] The Karachi–Peshawar main railway line will also be completely overhauled to allow for train travel at up to 160 kilometers per hour,^[8] with expected completion by December 2019.^[9] Pakistan's railway network will also eventually be further developed in order to connect it to the Chinese railway network in Kashgar.^[10]

A network of pipelines to transport liquefied natural gas and oil will also be laid as part of the project, including a $2.5 billion pipeline between Gwadar and Nawabshah to transport gas from Iran,^[11] as well as $2 billion pipeline linking the cities of Karachi to Lahore which is to be built with Russian collaboration.^[12] An additional estimated $30 billion dollars worth of energy infrastructure will also be constructed by private firms in order to help alleviate Pakistan’s chronic energy shortages,^[13] with over 10,400MW of energy generating capacity to be developed by March 2018 as part of the corridor's fast-tracked “Early Harvest” projects.^[14]

The economic corridor is considered central to China–Pakistan relations; its central importance is reflected by China’s inclusion of the project as part of its 13th five year development plan.^[15][16] The Corridor is an extension of China’s proposed 21st century Silk Road initiative,^[17] and encompasses not on economic development, but also intelligence sharing between the countries.^[18][19] In reference to this project, the Asian Development Bank stated "CPEC will connect economic agents along a defined geography. It will provide connection between economic nodes or hubs, centered on urban landscapes, in which large amount of economic resources and actors are concentrated. They link the supply and demand sides of markets."^[20]

Background

External video

China Reaches Out to Pakistan With Massive Economic Plan.

The current form of the project was first proposed by Chinese Premier Li Keqiang and Nawaz Sharif on 22 May 2013 in Islamabad,^[21][22] resulting in the establishment of the The Pak-China Economic Corridor Secretariat on 27 August 2013.^[23] However, the plans for a corridor stretching from the Chinese border to Pakistan's deep water ports on the Arabian Sea date back to 1959 with the construction of the Karakoram Highway.^[24] In 2002, China also initiated construction works at Gwadar port with the intention of linking it to Western China, however, development of the port ceased after 2007 owing to political instability in Pakistan following the fall of General Pervez Musharraf and subsequent conflict between the Pakistani state and Islamist militants.^[25]

In February 2014, Pakistani President Mamnoon Hussain visited China to discuss the plans for an economic corridor in Pakistan.^[26] Two months later, Pakistan Prime Minister Nawaz Sharif met with Premier Li Kequiang in China to discuss further plans,^[27] resulting in the full scope of the project to be devised under Sharif's tenure.^[28] In November 2014, Chinese government announced its intention to finance Chinese companies as part of its $45.6 billion energy and infrastructure projects in Pakistan as part of CPEC.

During the state visit of Xi Jinping to Pakistan in April 2015, he wrote in an open editorial stating: "This will be my first trip to Pakistan, but I feel as if I am going to visit the home of my own brother." On 20 April 2015, Pakistan and China signed an agreement to commence work on the $46 billion agreement, which is roughly 20% of Pakistan's annual GDP,^[29] with approximately $28 billion worth of fast-tracked "Early Harvest" projects to be developed by the end of 2018.^[30] As a gesture of friendship, the Pakistani capital at that time was dotted with slogans and signboards such as "Pakistan-China friendship is higher than the mountains, deeper than the oceans, sweeter than honey, and stronger than steel" ^[31] - an oft repeated phrase coined by the Chinese to describe their deep ties to Pakistan.

On August 12, 2015 in the city of Karamay, China and Pakistan signed 20 more agreements worth $1.6 billion to further augment the scale and scope of CPEC.^[32] Details of the plan are opaque,^[33] but are said to mainly focus on increasing energy generation capacity.^[34] The two sides released the "Karamay Manifesto" that expanded the scope of Pakistan-China cooperate beyond the scale of infrastructure improvement as envisioned by CPEC: as part of the agreement, Pakistan and China have agreed to cooperate in the field of space research.^[35]

In September and October 2015, the government of the United Kingdom announced two separate grants to the Government of Pakistan for construction of roadways that are complementary to CPEC.^[36][37] In November 2015, China included the CPEC into its 13th five-year development plan,^[15] while in December 2015, China and Pakistan agreed on a further $1.5 billion investment to set up an information and technology park as part of the CPEC project.^[38]

Projects in Gwadar Port and City

Gwadar forms the crux of the CPEC project, as it is envisaged to be the link between China's ambitious One Belt, One Road project, and its Maritime Silk Road project.^[39] In total, more than $1 billion worth of projects are to be developed around the port of Gwadar by December 2017.

Initial infrastructure works at Gwadar Port commenced in 2002 and were completed in 2007,^[25] however plans to upgrade Gwadar's airport never materialized. Under CPEC, China will grant Pakistan $230 million in order to construct a new international airport in Gwadar which is to be operational by December 2017.^[40] The provincial government of Balochistan has set aside 4000 acres for the construction of the new $230 million Gwadar International Airport which will require an estimated 30 months for construction,^[41] the costs of which are to be fully funded by grants from the Chinese government which Pakistan will not be obliged to repay.^[42]

The airport is being constructed in close proximity to both the seaport at Gwadar, and to a new 2,282 acre free trade area in Gwadar which is being modeled on the lines of the special economic zones of China.^[43] The swathe of land was handed to the China Overseas Port Holding Company in November 2015 as part of a 43-year lease.^[44] The project will be completed in three phases. By 2025, it is envisaged that manufacturing and processing industries will be developed, while further expansion of the zone is intended to be complete by 2030.^[25]

Gwadar Port itself is being expanded and upgraded by the addition of breakwaters, and dredging to allow for larger ships. The city of Gwadar is further being developed by the construction of a 300MW coal power plant, a desalinization plant, a new 300 bed hospital, and an expressway along Gwadar's East Bay. These additional projects are estimated to cost $800 million, and are to be financed by 0% interest loans extended by the Exim Bank of China to Pakistan.^[45]

In addition to the aforementioned infrastructure works, the Pakistani government announced in September 2015 its intention to establish a training institute named Pak-China Technical and Vocational Institute at Gwadar which is to be completed by March 2016 at the cost of 943 million rupees.^[25] The institute is designed to impart to local residents the skills required to operate and work at the expanded Gwadar Port.^[25]

Road infrastructure projects

The CPEC project envisages major upgrades and overhauls to Pakistan's transportation infrastructure. Under the CPEC project, China has announced financing for $10.63 billion worth of transportation infrastructure so far; $6.1 billion have been allocated for road construction at an interest rate of 1.6 percent.^[46] The remainder of funds will be allocated when the Pakistani government awards contracts for construction of road segments which are still in the planning phase, such as the Phase 1 of the Karakoram Highway Reconstruction project.

Northern Alignment

The Northern Alignment project refers to reconstruction and upgrade works on National Highway 35 (N-35). The N-35 forms the Pakistani portion of the Karakoram Highway, and spans the 887 kilometer long distance between the China-Pakistan border and the town of Burhan, near Hasan Abdal. At Burhan, the existing M1 motorway will intersect the N-35 at the Shah Maqsood Interchange. From there, access onwards to Islamabad and Lahore continues as part of the existing M1 and M2 motorways. Burhan will also be at intersection of the Northern Alignment, and Western Alignment, which upon completion will provide northern Pakistan and western China direct roadway access to the port city of Gwadar via the cities of Dera Ismail Khan and Quetta. Upgrades to the 487 kilometer long Raikot to Burhan section of the Karakoram Highway are officially referred to in Pakistan as the Karakoram Highway Phase 2 project.

At the southern end of the N-35, works are underway to construct a 59-kilometer-long, 4-lane controlled-access highway between Burhan and Havelian which upon completion will be officially referred to as the E-35 expressway.^[47]North of Havelian, the next 66 kilometers of road will be upgraded to a 4-lane dual carriageway between Havelian and Shinkiari.^[48]

The next 354 kilometers of roadway between Shinkiari and Raikot, near Chilas will be constructed as a 2-lane highway.^[49] The northern 255.8 kilometers of this section between Thakot and Raikot spans an area in which the government of Pakistan is currently either planning or actively constructing several hydropower projects, most notably the Diamer-Bhasha Dam and Dasu Dam. Sections of the N-35 around these projects will be completely rebuilt in tandem with dam construction^[50] In the interim, this section of the N-35 is currently being upgraded from its current state until dam construction commences in full force at a later date. Improvement projects on this section are expected to be completed by January 2017 at a cost of approximately $72 million.^[51][52]

The next 335 kilometers of roadway connect Raikot to the China-Pakistan border. This section of roadway preceded the CPEC, and were initiated after severe damage to roadways in the area following the 2010 Pakistan floods. Most of this section of roadway was completed in September of 2012 at a cost of $510 million,^[53] and was severely dilapidated even prior to the 2010 flooding.^[54]

In addition to flooding, a large earthquake rocked the region nearest to the China-Pakistan border in 2010, triggering massive landslides which dammed the Indus River, and resulted in the formation of the Attabad Lake. Portions of the N-35 were submerged in the lake, forcing all vehicular traffic onto barges in order to traverse the new reservoir. Construction on a 24 kilometer series of bridges and tunnels to Attabad Lake began in 2012 and required 36 months for completion. The bypass consists of 2 large bridges, 78 culverts and 5 kilometers worth of tunnels that were inaugurated for public use on September 14, 2015 at a cost of $275 million.^[55][56]

Near the northern part of the alignment, the 175 kilometer road between Gilgit and Skardu will be upgraded to a 4-lane road at a cost of $475 million in order to provide direct access to Skardu via the N-35.^[57][58]

Eastern Alignment

The Eastern Alignment of the CPEC refers to the part of the corridor which lies in the eastern parts of Pakistan, namely those in the Sindh and Punjab provinces. Roadway infrastructure to be built as part of the CPEC's Eastern Alignment will consit of the Karachi-Lahore Motorway. This term, in turn, refers to the stretch of motorway resulting from the combination of the M5 Motorway and the M9 Motorway that was first envisioned in 1991.^[59] The 1,152 km long motorway will connect Pakistan's two largest cities by a 4 to 6-lane controlled access highway designed for travel speeds up to 120 kilometers per hour.^[60] The entire project will cost approximately $6.6 billion, with the bulk of financing to be distributed by various Chinese state-owned banks.^[61]

The entire Eastern Alignment project is divided into four sections: a 136 kilometer long section between Karachi and Hyderabad also known as the M9 Motorway, a 296 kilometer long section between Hyderabad and Sukkur, a 387 kilometer long section between Sukkur and Multan, and a 333 kilometer section between Multan and Lahore via the town of Abdul Hakeem.^[62] Construction began on the Lahore to Multan section in November 2015.^[63]

The first section of the project will provide high speed road access from the Port of Karachi to the city of Hyderabad and interior Sindh. Upgrade and construction works on this section currently known as Super Highway between Karachi and Hyderabad began in March 2015, and will convert the road into the 4-lane controlled access M9 Motorway which will be completed in an estimated 30 months, and form the first section of the Karachi-Lahore Motorway project.^[64]

At the terminus of the M9 motorway in Hyderabad, the Karachi-Lahore Motorway will continue onwards from Hyderabad to Sukkur as a six lane controlled-access motorway that will be 296 kilometers long.^[65] The planned cost for this project is $2.47 Billion,^[65] and will provide high speed road access to interior Sindh- especially near the towns of Matiari, Nawabshah, and Khairpur. The project will require the construction of seven interchanges, and 25 bridges on the Indus river and various canals.^[65] The planned route of the motorway runs roughly parallel to the existing two-lane National Highway and one-lane Indus Highway.

The 392 kilometer Sukkur to Multan section of the motorway is estimated to cost $2.89 billion,^[60] and will be six lanes wide.^[66] 90% of the project's cost is to be financed by concessionary loans from China, with the remaining 10% to be financed by the government of Pakistan.^[67] The Pakistani government in January 2016 awarded the contact to build this section to China State Construction Engineering.^[60] Construction is planned to last 36 months.^[60]

Construction on the first new-build portion of the Karachi Lahore Motorway project between Multan and Lahore costing approximately $1.5 billion^[63] was launched in November 2015 ^[68] as a joint venture between the China Railway Construction Corporation Limited and Pakistan's Zahir Khan and Brothers Engineers^[69] The total length of this motorway section is 333 kilometers, however, the first 102 kilometers of the road between Khanewal and Abdul Hakeem is designed as part of the M4 Motorway, resulting in overlap of the M4 with the Karachi-Lahore Motorway along this section.^[70] The portion of the Karachi-Lahore Motorway between Abdul Hakeem and Lahore will be 230 kilometers in length.^[71]

Western Alignment

The CPEC project envisages an expanded and upgraded road network in the Pakistani provinces of Balochistan, Khyber Pakhtunkhwa, and western Punjab Province as part of the Western Alignment. The Western Alignment project will result in the upgrading of several hundred kilometer's worth of road into 2 and 4-lane divided highways by mid-2018, with land acquisition sufficient for upgrading parts of the road to a 6-lane motorway in the future.^[72] In total, the CPEC project envisages re-construction of 870 kilometers of road in Balochistan province alone as part of the Western Alignment. Of those 870 kilometers of road, 620 kilometers have already been rebuilt as of January 2016.^[73]

The Western Alignment roadway network will begin at the Barahma Bahtar Interchange on the M1 Motorway near the towns of Burhan and Hasan Abdal in northern Punjab province.^[74] The Northern Alignment will connect to the Western Alignment at Burhan. From there, a new 285 kilometer long 4-lane dual carriageway will be constructed between Burhan to the town of Yarik, just north of Dera Ismail Khan.^[75] The route will transverse the Sindh Sagar Doab region, and cross the Indus River at Mianwali before entering into Khyber Pakhtunkhwa province. Total costs for the project are expected to be $1.05 billion.^[76] Construction on this portion of roadway is expected to commence in March 2016,^[77] and is expected to be completed within 36 months.^[78]

At the southern terminus of the new Burhan-Yarik road, the N50 National Highway will also be upgraded between Dera Ismail Khan in Khyber Pakhtunkhwa and Zhob in neighboring Balochistan province, with eventual reconstruction between Zhob and Quetta.^[79] The upgraded roadway will consist of a 4 lane dual-carriageway spanning the 205 kilometer distance between the two cities.^[80] The first portion of the N50 to be upgraded will be the 81 kilometer portion of the N50 between Zhob and Mughal Kot, with construction works having begun in January 2016.^[81] Construction on this portion is expected to be completed by 2018 at a cost of $86 million,^[82]While the project is consider a vital link in the CPEC's Western Alignment,^[83] the project's cost will not be financed by Chinese state-owned banks, but will instead be financed by the Asian Development Bank under a 2014 agreement which preceded CPEC,^[84][85] as well as by a grant provided by the United Kingdom's Department for International Development.^[86]

Heading south from Quetta, the Western Alignment of the CPEC will continue to the town of Surab in central Balochistan as the N25 National Highway. From Surab, a 470 kilometer long route known as the N85 National Highway will connect central Balochistan with the town of Hoshab in southwestern Balochistan province near the city of Turbat. This portion of roadway between Surab and Hoshab is 51% complete as of January 2016,^[87] and is expected to be completed in December 2016.^[88]

Along the Western Alignment route, the towns of Hoshab and Gwadar are connected by a newly-built 193 kilometer long portion of the M8 Motorway - the Hoshab to Gwadar portion of the motorway was completed and inaugurated in February 2016 by Prime Minister Nawaz Sharif.^[89] The M8 Motorway will eventually span the 892 kilometer distance between Gwadar and the city of Ratodero in neighboring Sindh Province,^[90] where it will in turn connect to the Karachi-Lahore Motorway.

The Western Alignment will be flanked by special economic zones along its route,^[91] with at least seven special economic zones planned to be established in Khyber Pakhtunkhwa.^[72]

Other roadway projects associated with CPEC

The 184 kilometer long M-4 Motorway between Faisalabad and Multan does not fall under the scope of CPEC projects, but is nevertheless considered vital to the CPEC transportation project. It will instead be financed by the Asian Development Bank and the Asian Infrastructure Investment Bank,^[92] with an additional $90.7 million grant announced in October 2015 by the government of the United Kingdom towards the construction of portion of the M4 Motorway project.^[93]

The Karakoram Highway south of the city of Mansehra will also be upgrade into a controlled-access highway to officially be know as the E-35 expressway. While it is considered to be a crucial part of the route between Gwadar and China, the E35 will not be financed by CPEC funds. The project will instead be financed by the Asian Development Bank^[94] with a $121.6 million grant from the United Kingdom towards the project.^[95] Once completed, the E35 Expressway, the M4 Motorway, and Karachi-Lahore Motorway will provide continuous high-speed road travel on controlled-access motorways from Mansehra to Karachi - 1,550 kilometers away.

Approximately halfway between Zhob and Quetta, the town of Qilla Saifullah in Balochistan lies at the intersection of the N50 National Highway and the N70 National Highway. The two roads form the 447 kilometer route between Quetta and Multan in southern Punjab. While the N70 project is not officially a part of CPEC, it will connect the CPEC's Western Alignment to the Karachi-Lahore Motorway at Multan. Reconstruction works on the 126 kilometer portion of the N70 between Qilla Saifullah and Wagum are slated for completion by 2018,^[96] and are financed as part of a $195 million package by the Asian Development Bank,^[97] and by a $72.4 million grant from the United Kingdom's Department for International Development.^[98]

Railway infrastructure projects

The CPEC project emphasizes major upgrades to Pakistan's aging railway system, including rebuilding of the entire Main Line 1 railway between Karachi and Peshawar by 2020;^[99] this single railway currently handles 70% of Pakistan Railways traffic.^[100] In addition to the Main Line 1 railway, upgrades and expansions are slated for the Main Line 2 railway, Main Line 3 railway. The CPEC plan also calls for completion of a rail link over the 4,693 meter high Khunjerab Pass. The railway will provide direct access for Chinese and East Asian goods to Pakistani seaports at Karachi and Gwadar by 2030.^[101]

Procurement of an initial 250 new passenger coaches, and reconstruction of 21 train stations are also planned as part of the first phase of the project - bringing the total investment in Pakistan's railway system to approximately $5 billion by the end of 2019.^[102] 180 of the coaches are to be built at the Pakistan Railways Carriage Factory near Islamabad,^[103] while the Government of Pakistan intends to procure an additional 800 coaches at a later date, with the intention of building 595 of those coaches in Pakistan.^[103]

Overhaul of Main Line 1 Railway

The CPEC "Early Harvest" plan includes a complete overhaul of the of 1,687 kilometer long Main Line 1 railway (ML-1) between Karachi and Peshawar at an estimated cost of $3.65 billion.^[46] with expected completion by December 2019.

Upgrading of the railway line will permit train travel at speeds of 160 kilometers per hour, versus the average 60 to 105 km per hour speed currently possible on existing track,^[104] and is expected to increase Pakistan Railways' annual revenues by approximately $480 million.^[105][106] The upgrades are also expected to cut transit times from Karachi to Peshawar by half.^[8]

The first phase of the expedited project will focus on upgrading the Multan to Peshawar section, which will then be followed by the Hyderabad to Multan section, and finally by the Hyderabad to Karachi section.^[107]

At the time of CPEC's announcement, the ML-1 consisted of dual track railway between Karachi, and the Lahore suburb of Shahdara, interrupted by an approximately 90 kilometer long stretch of single track railway between Sahiwal and the city of Raiwind, south of Lahore. From Shahdara, the track mainly consisted of a single track until the ML-1 terminus in Peshawar. Construction works to upgrade the stretch of ML-1 between Sahiwal and Raiwind to a dual track railway were completed and inaugurated in January of 2016, resulting in a fully dual track railway between Karachi and Shahdara.^[108]

In addition to a complete overhaul of the Karachi to Shahdara railway, the remaining stretch of track between Shahdara and Peshawar is to upgraded to a dual track railway under CPEC.^[109] A spur from Taxila to Havelian will also be constructed, with a dry port to be established near the city of Havelian.^[110] Further, the entire length of track will have computerized signal systems, with stretches of track in urban areas to also be fenced off to prevent pedestrians and vehicles from crossing tracks in unauthorized areas.^[111]

Overhaul of Main Line 2 Railway

In addition to upgrading the ML-1, the CPEC project also calls for similar major upgrade on the 1,254 kilometer long Main Line 2 (ML-2) railway between Kotri in Sindh province, and Attock in northern Punjab province via the cities of Larkana and Dera Ghazi Khan.^[112] The route towards northern Pakistan roughly parallels the Indus River, as opposed to the ML-1 which takes a more eastward course towards Lahore. The project also includes a plan to connect Gwadar, to the town of Jacobabad, Sindh^[113] which lies at the intersection of the ML-2 and ML-3 railways.

Overhaul of Main Line 3 Railway

Medium term plans for the Main Line 3 (ML-3) railway line will also include construction of a 560 kilometer long railway line between Bostan near the Afghanistan border, to Kotla Jam near the city of Dera Ismail Khan,^[114] which will provide access to southern Afghanistan. The railway route will pass through the city of Quetta and Zhob before terminating in Kotla Jam, and is expected to be constructed by 2025.^[115]

Orange Line Metro

The $1.6 billion Orange Line of the Lahore Metro is also being constructed under the CPEC. Construction on the line has already begun, with planned completion by Winter 2017.^[116][117] The line will be 27.1-kilometre (16.8 mi) long, of which 25.4 kilometres (15.8 mi) will be elevated, with the remaining portion to be underground between Jain Mandir and Lakshmi Chowk.^[118] When complete, the project will have the capacity to transport 250,000 commuters per day, with plans to increase capacity to 500,000 commuters per day by 2025.^[119]

Khunjerab Railway

Longer term projects under CPEC also call for construction of the 682 kilometer long Khunjerab Railway line between the city of Havelian, to the Khunjerab Pass on the Chinese border,^[120] with extension to China's Lanxin Railway in Kashgar, Xinjiang. The railway will roughly parallel the Karakoram Highway, and is expected to be complete in 2030.^[121]

The cost of the entire project is estimated to be approximately $12 billion, and will require 5 years for completion. A 300 million rupee study to establish final feasibility of constructing the rail line between Havelian and the Chinese border is already underway.^[122] A preliminary feasibility study was completed in 2008 by the Austrian engineering firm TBAC.^[123]

Energy sector projects

Pakistan currently faces energy shortfalls of over 4,500MW on a regular basis^[124] with routine power cuts of up to 12 hours per day,^[125] which has shed an estimated 2-2.5% off its annual GDP.^[125] Energy generation will be a major focus of the CPEC project, with over $30 billion expected to be invested in this sector.^[13] As part of the "Early Harvest" scheme of the CPEC, an estimate 10,400 MW of electricity are slated for generation by March 2018.^[14]

The energy projects under CPEC will be constructed by private Independent Power Producers, rather than by the governments of either China or Pakistan.^[126] The Exim Bank of China will finance these private investments at 5-6% interest rates, while the government of Pakistan will be contractually obliged to purchase electricity from those firms at pre-negotiated rates.^[127]

Renewable-energy projects

China's Zonergy company will construct the world's largest solar power plant -the 6,500 acre Quaid-e-Azam Solar Park near the city of Bahawalpur with an estimated capacity of 900MW is expected to be completed in December 2016.^[128][129] The Jhimpir Wind Power Plant, built by the Turkish company Zorlu Enerji has already begun to sell 56.4 MW of electricity to the government of Pakistan,^[130] though under CPEC, another 250MW of electricity are to be produced by the Chinese-Pakistan consortium United Energy Pakistan and others at a cost of $659 million.^[131][132] SK Hydro Consortium is constructing an 870 MW hydroelectric powerplant the Kaghan Valley of Pakistan's Khyber Pakhtunkhwa province at a cost of $1.8 billion,^[133] SK Hydro will construct the project with financing by China's EXIM bank,^[134] and will in turn sell electricity to the government of Pakistan at a rate of 8.8 cents per kilowatt hour. The $1.6 billion 720 MW Karot Dam which is under construction is often mistakenly quoted as being part of the CPEC plan, but is in fact financed separately by China's Silk Road Fund.^[135] Pakistan and China have also discussed the inclusion of the 4,500MW $14 billion Diamer-Bhasha Dam as part of the CPEC project,^[136] though as of December 2015, no firm decision has been made - though Pakistani officials remain optimistic at its eventual inclusion.^[137] The $2.4 billion, 1,100 MW Kohala Hydropower Project being constructed by China's Three Gorges Corporation predates the announcement of CPEC, though funding for the project will now come from CPEC fund.^[138]

Fossil fuel-energy projects

Despite several renewable energy projects, the bulk of new energy generation capacity under CPEC will be coal-based plants. The 1,320MW $2.08 billion Pakistan Port Qasim Power Project will be a joint venture of Al-Mirqab Capital from Qatar, and China's Power Construction Corporation - a subsidiary of Sinohydro Resources Limited.^[139][140] The $1.8 billion Sahiwal Coal Power Project, also with a capacity of 1,320MW, will be constructed, owned, and operated by a joint venture of two Chinese firms, the Huaneng Shandong company, and Shandong Ruyi Science & Technology Group.^[141] A consortium of the Chinese Shanghai Electric company and Pakistan's Engro Corporation will also jointly construct five coal based power plants with a combined capacity of 2,060MW.^[142]

Other coal-based projects to be constructed by private firms include two 330MW coal power plants in Punjab Province's Salt Range, and a $970 million coal power plant at Hub, Balochistan near Karachi with a capacity of 660MW to be built by the Pakistani firm Hub Power Company. A 300MW coal power plant is also being developed in the city of Gwadar, and is being financed by a 0% interest loan.^[45]

Liquefied Natural Gas power plants will also be part of the CPEC project. The 1,223MW Balloki Power Plant is currently under construction near Kasur, and is being constructed by China's Harbin Electric Company with financing from the China's EXIM bank.

In October 2015, Prime Minister Nawaz Sharif inaugurated construction of the 1,180MW Bhikki Power Plant near Sheikhupura,^[143] which is to be jointly constructed by China's Harbin Electric Company and General Electric from the United States.^[144] It is expected to be Pakistan's most efficient power plant, and will provide enough power for an estimated 6 million homes.^[144]

In addition to the construction of power plants, the CPEC project requires the development of coal mining fields and supporting infrastructure. As part of infrastructure required for electricity distribution, the $1.5 billion in Matiari to Lahore Transmission Line, and $1.5 billion in Matiari to Faisalabad Transmission Line are also to be constructed as part of the CPEC project.^[14] Mining projects announced as part of the CPEC include the $1.7 billion in Surface Mine in Block II of Thar Coalfield, and a $1.3 billion mine in SSRL Thar Coal Block.

Liquified natural gas transport

In addition to the aforementioned economic zones, transportation projects, and civil engineering works, the Chinese government has also announced its intention to build a $2.5 billion 711 kilometer long liquid natural gas pipeline from Gwadar to Nawabshah in province.^[145] The pipeline is designed to be a part of the 2,775 kilometer long Iran–Pakistan gas pipeline, with the 80 kilometer portion between Gwadar and the Iranian border to be connected when sanctions against Tehran are eased; Iran has already completed a 900 kilometer long portion of the pipeline on its side of the border.^[11] The Pakistani portion of the pipeline is to be constructed by the state-owned China Petroleum Pipelines Bureau.^[146] It will be 42 inches in diameter, and have the capacity to transport 1 billion cubic feet of liquified natural gas every day, with an additional 500 million cubic feet of additional capacity when the planned off-shore LNG terminal is also completed^[147] The project will not only provide gas exporters with access to the Pakistani market, but will also allow China to secure a route for its own imports.^[148] The project should not be confused with the $2 billion 1,100 kilometer North-South Pipeline liquified natural gas pipeline which is being constructed with Russian assistance between Karachi and Lahore with anticipated completion by 2018.^[12] Nor should it be confused with the planned $7.5 billion TAPI Pipeline which is a planned project involving Turkmenistan, Afghanistan, Pakistan, and India.

Project financing

Loans to Pakistani Government

Approximately $11 billion worth of infrastructure projects being developed by the Pakistani government will be financed by concessionary loans, with interest rates of 1.6%,^[149] after Pakistan successfully lobbied the Chinese government to reduce interest rates from an initial 3%.^[150] The loans are subsidized by the government of China, and are to be dispersed by the Exim Bank of China and the China Development Bank. For comparison, loans for previous Pakistani infrastructure projects financed by the World Bank carried an interest rate between 5% and 8.5%,^[151] while interest rates on market loans approach 12%.^[152]

The loan money would be used to finance projects which are planned and executed by the Pakistani government. Portions of the approximately $6.6 billion^[61] Karachi–Lahore Motorway are already under construction.^[153] The $2.5 billion phase which will connect the city of Multan to the city of Sukkur over a distance of 387 kilometers has also been approved,^[154] with 90% of costs to be financed by the Chinese government at 1.6% interest rates, while the remaining 10% is to be financed by the Public Sector Development Programme of the Pakistani government.^[155]

The 487 kilometer portion of the Northern Alignment between Burhan and Raikot will be reconstructed at a cost of $920 million,^[156] and will be financed by the China Development Bank.^[157]

The long-planned 27.1 km long $1.6 billion Orange Line of the Lahore Metro pre-dates the CPEC project, and does not qualify for the Exim Bank's 1.6% interest rate. It will instead by financed at a 2.4% interest rate^[158] after China agreed to reduce interest rates from an originally planned rate of 3.4%.^[159]

The $44 million Cross Border Optic Fiber Project, a 1,300 km long fiber optic wire connecting Pakistan and China, will be constructed using concessionary loans at an interest rate of 2%, rather than the 1.6% rate applied to other projects.^[3]

Special interest-free loans for Gwadar

The government of China in August 2015 announced that concessionary loans for several projects in Gwadar totaling $757 million would be converted 0% interest loans.^[160] The projects which are now to financed by the 0% interest loans include: the construction of the $140 million Eastbay Expressway project, installation of breakwaters in Gwadar which will cost $130 million, a $360 million coal power plant in Gwadar, a $27 million project to dredge berths in Gwadar harbor, and a $100 million 300-bed hospital in Gwadar.^[161] Pakistan will only repay the principle on these loans.

In September 2015, the government of China also announced that the $230 million Gwadar International Airport project would no longer be financed by loans, but would instead be constructed by grants which the government of Pakistan will not be required to repay.^[150]

Loans to private consortiums

$15.5 billion worth of energy projects are to be constructed by joint Chinese-Pakistani firms, rather than by the governments of either China or Pakistan. The Exim Bank of China will finance those investments at 5-6% interest rates, while the government of Pakistan will be contractually obliged to purchase electricity from those firms at pre-negotiated rates.^[127]

As an example, the 1,223MW Balloki Power Plant does not fall under the concessionary loan rate of 1.6%, as the project is not being developed by the Pakistani government. Instead, it is considered to be a private sector investment as its construction will be undertaken by a consortium of Harbin Electric and Habib Rafiq Limitedafter they successfully bid against international competitors.^[162] Chinese state-owned banks will provide loans to the consortium that are subsidized by the Chinese government. In the case of the Balloki Power Plant, state-owned banks will finance the project at an interest rate of 5%,^[163] while the Pakistani government will purchase electricity at the lowest bid rate of 7.973 cents per unit.^[164]

Asian Development Bank loans

While the E-35 expressway is considered to be a crucial part of the route between Gwadar and China, the E35 will not be financed by CPEC funds. The project will instead be financed by the Asian Development Bank.^[165]

The N70 project is not officially a part of CPEC but will connect the CPEC's Western Alignment to the Karachi-Lahore Motorway at Multan. The project will be financed as part of a $195 million package by the Asian Development Bank announced in May 2015 to upgrade the N70 National Highway and N50 National Highway.^[166] In January 2016, The United Kingdom's Department for International Development announced a $72.4 million grant to Pakistan for roadway improvements in the province of Balochistan, thereby reducing the total Asian Development Bank loan from $195 million to $122.6 million.^[167]

The M-4 Motorway between Faisalabad and Multan is not to be financed by the Chinese government as part of CPEC, but will instead be the first infrastructure project partially financed by the Asian Infrastructure Investment Bank, and will be co-financed along with the Asian Development Bank for a total of approximately $275 million.^[92] Portions of the project will also be funded by a $90.7 million grant announced in October 2015 by the government of the United Kingdom towards the construction of the Gojra-Shorkot section of the M4 Motorway project.^[93]

Geopolitical impact

“	[CPEC] will be a strategic gamechanger in the region, which would go a long way in making Pakistan a richer and stronger entity than ever before.	”
— Firstpost (India) April 22, 2015, [168]

China and Pakistan intend that the massive investment plan will transform Pakistan into a regional economic hub and further boost the deepening ties between the two countries.^[169] The Pakistani media and government called the investments a "game and fate changer" for the region.^[170][171] According to The Guardian, "The Chinese are not just offering to build much-needed infrastructure but also make Pakistan a key partner in its grand economic and strategic ambitions."^[172] The project will also open trade routes for Western China and provide China direct access to the resource-rich Middle East region via the Arabian Sea, bypassing longer logistical routes currently through the Strait of Malacca.^[173]

When the corridor is constructed, it will expand the number of trade routes between China, the Middle East and Africa. Energy security is a key concern for China, as it is the world's biggest oil importer,^[29] and oil pipelines through Pakistan would cut out ocean travel through Southeast Asia.^[174]

According to Chinese Foreign Ministry Spokesperson Hua Chunying, the corridor will "serve as a driver for connectivity between South Asia and East Asia." Mushahid Hussain, chairman of the Pakistan-China Institute, told China Daily that the economic corridor "will play a crucial role in regional integration of the 'Greater South Asia', which includes China, Iran, Afghanistan, and stretches all the way to Myanmar."^[26]

“	The move represents a shift toward greater economic cooperation between Pakistan and China. The corridor would provide China access to the Indian Ocean and lead to investments that would help ease power shortages that are hindering economic growth in Pakistan.	”
—  Bloomberg Business on April 1, 2015, [175]

China plans to build oil storage facilities and a refinery at Gwadar Port, with oil transported to its Xinjiang Uighur Autonomous Region via road and pipeline. This will let it move energy and goods to inland China without going through the Strait of Malacca, which could be blocked by the U.S. or India should hostilities break out in the region. The project will also lead to development in western China, where tensions are simmering from activities by radical separatists.^[176][177] Iran has also responded positively over the proposal to link the Iran–Pakistan gas pipeline with China, with the Iranian ambassador to China describing it as a "common interest" between the three countries.^[178]

CPEC is considered economically vital to Pakistan in helping it drive economic growth.^[179] Moody's Investors Service has described the project as a "credit positive" for Pakistan. In 2015, the agency acknowledged that much of the project's key benefits would not materialise until 2017, but stated that it believes at least some of the benefits from the economic corridor would likely begin accruing even before then.^[180] A study by the Pew Research Center in 2014 found that 78% of Pakistanis have a positive view of China.^[181][182]

CPEC as a route to circumvent Afghanistan

As the project links Pakistan's seaports with Kashgar, China, ongoing construction works on China's One Belt One Road project will result in connections between Kazakhstan, Kyrgyzstan, and Kashgar - thereby allowing those Central Asia republics to access Pakistan's deep water ports without having to rely on a politically unstable Afghanistan as a transit corridor.

The "Quadrilateral Agreement on Traffic in Transit" was signed in 2005 by the governments of China, Pakistan, Kazakhstan, and Kyrgyzstan to facilitate transit trade between the various countries.^[183] The agreement has not been widely exploited due to challenging topography and inadequate infrastructure.

With the advent of CPEC-related infrastructure projects, transit times between Kashgar and Pakistan's coast will be greatly reduced, which in turn will also reduce transit times to the Kyrgyzstan and hydrocarbon-rich Kazakhstan. The Chinese government has already upgraded the road linking Kashgar to Osh in Kyrgyzstan, while a railway between Urumqi, China and Almaty, Kazakhstan has also been completed as part of China's One Belt One Road initiative,^[184] which complements the CPEC project in order to provide Central Asian states access to Pakistan's deepwater ports by completely bypassing Afghanistan - a country which has been ravaged by civil war and political instability since the late 1970s.

During the August 2015 visit of Pakistani Prime Minister Nawaz Sharif to Kazakhstan, the Kazakh Prime Minister Karim Massimov, conveyed Kazakhstan's desire to link its road network to the CPEC project.^[185] During the November 2015 visit of Tajikistan President Emomali Rahmon to Pakistan, the Tajik premier expressed his government's desire to join the 2005 Quadrilateral Agreement on Traffic in Transit in order to utilize CPEC as a conduit for imports and exports to Tajikistan;^[186] the request received political backing by the Pakistani Prime Minister.^[186]

Security

China has expressed concern that some separatist groups in Xinjiang may be collaborating with insurgents in Pakistan, and has expressed a desire to strengthen security ties.^[29] The outlawed Tehrik-i-Taliban has claimed responsibility for past attacks on some Chinese nationals,^[187] and Chinese commentators have raised concerns that construction workers could be kidnapped and ransomed.^[188] The Express Tribune reports that Pakistan plans to train 12,000 security personnel to protect Chinese workers on the corridor.^{[189][190][191]} Presently, 8,000 Pakistani security officials are deployed for the protection of over 8,100 Chinese workers in Pakistan.^[192]

Some militant separatist groups operate in Balochistan, including the Balchistan Liberation Army and Jundallah, which have carried out bombings. The terror groups are reportedly backed by India.^[193][194]

The route of the Economic Corridor passes though Gilgit Baltistan, one of the regions that has been contested in the Kashmir conflict between India and Pakistan, and border guards have occasionally exchanged fire.^[195][196] Chinese intelligence agencies also shared information with Pakistani authorities regarding "foreign hostile agencies" who could support anti-state elements to sabotage the project, a reference mainly to the Indian intelligence agency, Research and Analysis Wing.^[197] Pakistan has responded that it will vigorously guard itself and its allies from Indian-backed militants.^[198]

Controversy and miscellaneous issues

Politicization of CPEC

Some planning aspects and technicalities associated with the route have been criticized on political forums and the media for varying reasons. The Provincial Assembly of Khyber Pakhtunkhwa province adopted a resolution^[199] against the alleged decision of the central government to change the multibillion route of the proposed project by diverting the northwestern province of Khyber Pakhtunkhwa. The provincial assembly advised the central government to stick to the same route as agreed upon between the governments of Pakistan and China, and passed a resolution stating that a change in the route not incorporating Khyber Pakhtunkhwa would disadvantage the economic interests of the people of the war-torn province. The federal Minister of Planning Development and Reform Ahsan Iqbal formally denied any change in the alignment.^{[28][200][201]}

According to Dr Ahmad Rashid Malik, Senior Research Fellow at the Institute of Strategic Studies Islamabad (ISSi), the route controversy is "baseless and an unfounded reality...".^[202]

Wu Zhaoli, an assistant research fellow at the National Institute of International Strategy, Chinese Academy of Social Sciences, in his article published in Global Times, argued that "security concerns are a critical cause which helps to determine the path of this corridor.^[188]
On May 28, 2015 the prime minister of Pakistan called on all parliamentary parties and all parties assured their support for the projects.The All Parties conference agreed that the western route of the corridor (which pass through Khyber Pakhtunkhwa and North Balochistan) would be completed first which would be built from Attock District (Hasan Abdal) to Gwadar, passing through Mianwali District, Dera Ismail Khan and Zhob.^[203]

Controversy over finances

In addition to the aforementioned issues, some sources have inappropriately suggested that the interest rate for CPEC related loans would be high, with one Indian source suggesting that Pakistan had unwittingly accepted loans that would "be offered at very high rates of interest,^[204]" although the actual interest rates were negotiated prior to acceptance, and for most projects will be 1.6%.^[205] Several articles in Pakistan have criticized the project's finances as being shrouded in mystery, while one article suggested that "there is far too much secrecy and far too little transparency."^[206]

Opposition from Baloch Nationalists

Baloch nationalists have expressed opposition to the project, stating that any large-scale development in the province would eventually lead to local residents "losing control" over their native resources. Other Baloch nationalists view it as a "conspiracy" that would stimulate migration of people from other provinces and make the Baloch a "minority" in their homeland.^[207]

Former Chief Minister of Balochistan province, Akhtar Mengal, suggested at a political rally in November 2015, that execution of CPEC projects would eventually result in ethnic Baloch being denied entry into the city,^[208] though no statements have been made in either Pakistan or China that would suggest such an outcome. He did, however, clarify that he would not oppose development projects in the province that he believed would uplift the plight of local residents.^[209] Shortly thereafter, the Pakistani government announced its intention to establish a training institute named Pak-China Technical and Vocational Institute at Gwadar which is to be completed by March 2016 at the cost of 943 million rupees in order to impart skills to local residents in order to train them to operate machinery at the port.^[25]

Indian objections to CPEC

The Government of India, which shares tense relations with Pakistan, regards portions of the CPEC project negatively as they pass through disputed territory which is claimed by India. During the visit of Indian Prime Minister Narendra Modi to China in 2015, the Indian Foreign Minister reportedly told Chinese Premier Xi Jinping that projects passing through Pakistan Administered Kashmir are "unacceptable" as they require road construction in territory India regards as its own.^[210][211] The Chinese Premier dismissed the concerns, describing CPEC as a "commercial project," in Gilgit-Baltistan, which China regards as Pakistani territory.^[212]

List of major projects

Project	Details
Gwadar Port	Completed, handed over to China for 40 years starting 2015[213]
Upgrading of Karachi–Peshawar Main Line	Feasibility study underway[214]
Khunjerab Railway	Feasibility study underway[215]
Karachi - Lahore Motorway (KLM)	Approved, Under construction 2015.[215] Project is expected to be completed by end of 2017. The network of Pakistan motorways will be connected to Karakorum Highway near Rawalpindi/ Islamabad. Hazara Motorway will be connected to M-1 and M-2 near the twin cities.
Havelian to Khunjrab Rail track	Approved[216]
Hazara Motorway (Also known as E35expressway or Abbottabad Motorway)	Under construction. Connect with M-1 and M-2 at Burhan, near Islamabad/ Rawalpindi. The project is expected to be completed before end of 2016[215]
Iran–Pakistan gas pipeline	Under construction, Iran's part of the pipeline is complete.[215]
Gwadar-Ratodero Motorway	Under construction, approx. 820-km long, expected completion Dec, 2015[215]
Economic Corridor Support Force	Completed, armed division of the army for security of workforce, cost $250 million[217]
Havelian Abbottabad Dry Port	Feasibility study underway for the container port
Orange Line (Lahore Metro)	Approved.[215] The work has been started. The project is expected to be completed towards end of 2017
Upgrading of Gwadar International Airport	Approved.[215] Work has been started and project is expected to be completed by December 2017
China-Pakistan Joint Cotton Bio-Tech Laboratory	Approved[215]
Gwadar-Nawabshah LNG Terminal and Pipeline Project	Approved[215]
700 MW Hydro-Electric Suki Kinari Hydropower Project	Approved[215]
1,320 MW Sahiwal Coal Power Project	Under construction[218]
1,320 MW Pakistan Port Qasim Power Project	Under construction[219]
720MW Karot Hydropower Project	Approved[215]
Zonergy 9x100 MW solar project in Punjab	Approved[215]
Jhimpir wind Power project	Approved[215]
Thar Block II 3.8Mt/a mining Project	Approved[215]
Thar Block II 2x330MW Coal Fired Power project	Approved[215]
Development of Private Hydro Power Projects	Approved[215]
Dawood Wind Power Project	Approved[215]
Hubco Coal-fired Power Plant Project	Approved[215]		China-Pakistan Joint Cotton Bio-Tech Laboratory	Approved[215]
Cross-border fibre optic data communication system project, a digital terrestrial multimedia broadcast pilot project at Murree	Approved[215]

See also

• China–Pakistan relations
• Foreign trade of Pakistan
• List of megaprojects

Notes

References

China–Pakistan Economic Corridor Background China–Pakistan relations One Belt, One Road Maritime Silk Road Xi Jinping's visit to Pakistan 2015 Chinese workers in Pakistan People Xi Jinping Li Keqiang Nawaz Sharif Mamnoon Hussain Infrastructure Gwadar Port Gwadar International Airport Karachi–Peshawar Main Line Karakoram Highway Khunjerab Railway Karachi–Lahore Motorway (KLM) Hazara Motorway M-8 Motorway Havelian Dry Port Orange Line (Lahore Metro) Energy projects Iran–Pakistan gas pipeline Quaid-e-Azam Solar Park Route Gwadar Panjgur Khuzdar Dera Murad Jamali Dera Ghazi Khan Multan Layyah Bhakkar Mianwali Hassanabad Haripur Abbottabad Mansehra Battagram Shangla Kohistan Gilgit Khunjerab Kashgar Category

One Belt, One Road Infrastructure networks Silk Road Economic Belt New Eurasian Land Bridge Maritime Silk Road Magampura Mahinda Rajapaksa Port Closely related networks BCIM China–Pakistan Economic Corridor Investment and lending Asian Infrastructure Investment Bank Silk Road Fund China Development Bank China Exim Bank Sinosure Sino Guarantee Financial and trade integration Internationalization of the renminbi Panda bonds Other Leading Group for Advancing the Development of One Belt One Road Category

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